Battle Between For-Profits, City Rec Centers Continues

Cry Foul: For-profit club owners say they cannot compete with city rec centers, whose managers say they just want what is best for the community.

A newspaper columnist in Vancouver, WA, once referred to that city's $25 million Firstenburg Community Center as a “Taj-Ma-health club.” It's no wonder. Firstenburg has more than 7,000 pounds of free weights, 40 pieces of cardio equipment, 15 bikes, several weight machines, a leisure swimming pool, basketball courts, a climbing wall and six flat-screen TVs.

Firstenburg, which is celebrating its second anniversary this month, is one of several city rec centers across the country that are attracting members with lavish amenities, and that has some former and current for-profit club owners crying foul. Not only do city rec centers have the backing of city government and taxpayers, but many of them bear none of the mortgage or rent costs that for-profit owners have. Most also charge lower membership fees than for-profit clubs, and they often market their facilities using existing mailing opportunities, such as notices in city water bills.

These advantages smack of unfair competition, say some for-profit club owners and industry observers. However, some city rec center managers say they are not competing with for-profit clubs. They say that the city facilities are primarily there to serve the community. But Rick Caro, president of New York-based consulting company Management Vision, disagrees, saying that city rec centers compete with for-profit clubs just as YMCAs, Jewish Community Centers, corporate in-house facilities and residential facilities do.

Whether or not city rec center managers see their facilities as competition to tax-paying clubs, city rec centers have helped put some for-profits out of business, their owners says. At least three club owners who operated close to Firstenburg in Vancouver are selling or have closed their clubs since the facility opened in February 2006. Ron Feik, owner of the 40-year-old Landover Athletic Club, closed his club to members last March, although it remains open to private club athletic teams. In Firstenburg's first month of operation, Feik says his club's membership fell from 3,000 to 500.

“When you lose 55 percent of your revenue the month they open, that kind of says something,” Feik says. “How can you compete with a $25 million facility? You can't.”

Hollie Olson owned Exclusively for Women, a 5,300-square-foot club near Firstenburg. Many issues led her to sell the club, including rising rent, but she says, “Firstenburg was the nail in the coffin.” Exclusively for Women closed in 2006.

“A powerful figure with a lot of marketing is going to hurt the smaller independent clubs,” Olson says.

Club owners that are battling city rec centers in other cities are threatening to close as well. Last month, Chuck Simon, the owner of the River Oaks Racquet and Fitness Center in Rocky River, OH, told the Cleveland Plain Dealer that Rocky River's rec center and other neighboring community rec centers that have cheaper dues were cutting into his business. To keep the club open and to pay his club's taxes, which totaled $95,000 in 2007, he said he would require members to pay an extra $300 as a special assessment or dues increase, which would bring in an estimated $250,000.

Government Influence

Some for-profit club owners claim that city governments that run the rec centers make decisions that adversely affect for-profit clubs. Feik and other for-profit club owners in Vancouver say the city placed advertisements for Firstenburg in water bills. Feik also says that when he needed to re-build a new sign at his club, the city made him place it parallel to the street rather than perpendicular, which made it harder for passers-by to locate his club.

Dave Miletich, the Vancouver-Clark County (WA) parks and recreation assistant director, says the representatives from the city that worked with Feik about the sign may or may not have known about his club's proximity to Firstenburg.

During the development phases of Firstenburg, Miletich says he heard few objections from for-profit health club owners. In meetings between the city and for-profit owners, the focus was on working together and finding ways not to compete with each other, Miletich says.

“For the most part, those have been positive discussions,” Miletich says.

Matt Lamarque, owner of two Garden Health and Fitness clubs in Monterey, CA, also says that the local government interfered with his business after he remodeled one of his clubs that is about 5 miles from the Monterey Sports Center, a fitness facility run by the city. When Lamarque bought the club in September 2005, it was not in good shape. After he remodeled it, the city took notice and ordered a fire inspection on his club, forcing him to spend $5,000 on improvements, he says.

Lamarque recently remodeled his women's locker rooms, which cost him $140,000. After the remodel, Lamarque says the Monterey Sports Center asked for $550,000 from the city to remodel its locker rooms.

“The coincidences do add up,” Lamarque says. “When the place was a dump, nobody cared. We're a viable threat, the way I look at it.”

Competing against the Monterey Sports Center is an uphill climb, Lamarque says.

“You have a city-run [and] sponsored facility that does not have to pay rent, does not have to pay for remodeling, and they don't have to service their own debt,” Lamarque says. “They don't have to make a profit. They've never been in the black. You can't compete with that. You can't put them out of business. It's cart blanche. They can do whatever they want, and they govern you at the same time. I've heard people say it's close to Communism.”

The manager of the Monterey Sports Center declined to comment for this story.

Vic Sprouse, a state senator from West Virginia and an owner of four Curves clubs in Charleston, WV, says he understands the difficulties of owning a club located near a city rec center. A Curves not owned by Sprouse as well as another for-profit club, both near a city rec center in South Charleston, recently closed.

“As a private business owner, how in the world do you compete with someone who's willing to lose $1.3 million a year?” Sprouse says. “The part that kills me is when my own tax dollars are being used against me. That's a little bit of a slap in the face.”

Market Analysis

The tax dollars that for-profit club owners pay sometimes go to building city rec centers near them. Cities that plan to construct a new city rec center often do not do a proper market analysis, Caro says, to see if and where a city facility is needed. If a new city rec center is constructed and if the supply of health club facilities in that community is greater than the demand, then the new city rec center hurts the entire marketplace, Caro says.

“That's where all citizens should protest and demand some kind of accountability, which sometimes just is not prevalent in these situations,” Caro says.

However, Clarence Mamuyac, a principal at ELS Architecture and Urban Design in Berkeley, CA, says that most cities do in fact do a thorough market analysis when planning the construction of a rec center. The cost of most city rec centers ranges between $20 million and $40 million, Mamuyac says.

The cost is worth it because citizens want city rec centers, contends Mark Westermeier, the director of Carmel-Clay (IN) Parks and Recreation, which opened a city rec center in June called the Monon Center. Citizens in Carmel, IN, needed 125 signatures from the 70,000 citizens to stop the rec center, but the petition fell short, he says. The Monon Center, which is the centerpiece for Carmel's $55 million Central Park, had between 5,000 and 6,000 pre-sale memberships and now boasts 21,000 memberships.

The primary competition for the Monon Center, which features a water park and a natatorium, is a neighboring YMCA that attracts members from the Carmel community.

Both city rec center managers and for-profit owners should be aware of where their competitors are, says Iowa City, IA, recreation superintendent Michael Moran.

“Duplication of services is something that we as government officials really have to pay attention to now because it's a waste of money,” Moran says. “If the parks and recreation agency was there first, and a fitness agency comes in and tries to outscope them, then shame on them if they haven't done their homework. On the other hand, it would be ludicrous for me as a parks and recreation director to offer something in direct competition with somebody else just because I don't like them or I want a lower price.

“I believe that the public should get the biggest bang for their buck, and I think public parks and recreation agencies could do that cheaper,” Moran adds. “That only stands to reason because the private enterprises want to make money.”

Like Moran, Westermeier supports the notion that government should examine what services it needs to provide its community. The support for a new fitness center in Carmel was overwhelming, Westermeier says.

“When our survey information from the residents who live here says, ‘We're willing to pay more in taxes to get this,’ then that sends a clear message that perhaps private industry hasn't met their needs,” Westermeier says.

Target Goals, Target Audiences

The Centennial Recreation Center in Morgan Hill, CA, opened in October 2006. The price tag of the facility was $27.6 million, and that money came from redevelopment dollars, says recreation manager Chris Ghione. The financial goal for the center was to have a full cost recovery by the third year of operation. Centennial is closing in on that goal in only its second year, Ghione says.

The goal of the Firstenburg center also is 100 percent cost recovery, and Miletich says Firstenburg was close to 100 percent in 2007. Mamuyac of ELS Architecture says it is unusual for a city to recover 100 percent of its operating costs.

Centennial has 2,400 membership packages, or between 8,000 and 9,000 members, with a majority of them belonging to families. The fact that Centennial offers free centers for teenagers and senior citizens sets it apart from for-profit clubs, Ghione says.

“It's a different market,” he says. “The family market is real big for us. And the experience is a little different than a fitness club. We want to offer a community facility.”

That's why Ghione does not view Centennial as a direct competitor to for-profit clubs.

“We really haven't heard too much criticism from the private sector at all,” he says. “It doesn't mean they're not upset. I'd have to look at their numbers. We may have found a different market.”

“The city's objective is to get more people in Vancouver and Clark County involved in fitness,” Miletich says. “A lot of health clubs don't have as large a percentage of family users.”

Examining Costs

Vancouver generates revenue at Firstenburg through swim lessons, classes, sports leagues, wedding receptions and other events. Any surplus, Miletich says, covers the center's free programs and goes into a facility repair fund. A third outlet for the surplus would be for a major capital repair fund, but Firstenburg is not at the stage to use that, Miletich says.

The Monterey Sports Center spent $3.9 million and took in $3.4 million, and had a payroll of $2.9 million, according to its 2006-2007 budget. The Sports Center has no rent or mortgage payments.

Lamarque says his operational costs for his two for-profit clubs are about $1.6 million per year. Lamarque says rent is $31,000 per month at one of his clubs, plus he has to pay $17,000 per month for his Small Business Association loan. Improvement costs affect Lamarque's budget more than it does for the Sports Center, he says.

Ghione says the Morgan Hill Centennial Recreation Center is operated by the city and pays no rent for the building. Centennial's annual budget is $2.4 million, he says.

The Centennial budget is similar to that of most for-profit clubs, Ghione says, in that its budget includes expenditures for operations, maintenance and payroll. The main difference for his center compared to for-profit facilities is that it takes direction from the city council as to how to use the center's budget. One disadvantage Centennial has, Ghione says, is that its free programs and scholarships for disadvantaged children come from operational costs.

Centennial has a partnership with a local YMCA association, and its business model is similar to a Y's, Ghione says. Centennial takes payments a year in advance or drafts money out of members' bank accounts every month, and that's a big reason why Centennial can get close to cost recovery annually, he says.

“A lot of municipalities don't follow that model, which is not necessarily a bad thing,” Ghione says.

David vs. Goliath?

Not all clubs in Vancouver were greatly affected by Firstenburg, which won a Facilities of Merit award at last year's Athletic Business Conference and Expo in Orlando. Trey Friauf's club, Oxford Athletic Club, was not affected by Firstenburg's opening because of its distance from Firstenburg, Friauf says. Even though Oxford is only 3 ½ miles from Firstenburg, it takes up to 25 minutes to get from one location to the other due to traffic, Friauf says.

“We've learned how to cope and compete with them,” Friauf says. “It's kind of a weird deal. I support fitness for everybody. I'm not sure why the city wanted to run a fitness club. We've been around for 48 years. It's bad any time any local business is closed down. It takes away jobs. It takes away tax dollars.”

As for Olson, who ran the Exclusively for Women club in Vancouver, she had a case of “If you can't beat 'em, join 'em.” Olson now teaches cardio classes at Firstenburg twice a week.

“I do feel like a traitor, but progress is progress,” Olson says. “You can't win against the city. It's too big of a giant to fight.”

City-run Facility Healthy in Chattanooga

Unlike city rec centers, which serve the community, some city-run facilities are open only to city employees.

Take the city employee fitness facility in Chattanooga, TN, for example. The center, which opened last May, is available only to the 2,500 city employees, their dependents and city retirees, bringing the number of eligible users to 8,000. Employees need to gain clearance from a medical provider to use the facility. So far, about 300 people have done just that, says Karen McMahon, Chattanooga project manager.

The fitness facility was a result of the city's wellness program, which includes two on-site medical clinics that provide primary health care to its employees and their dependents. The clinics include health-risk assessments that gauge smoking and body mass index risks, and offer cash award incentives ranging from $100 to $300.

“We had people say, ‘You're going to provide me incentives for getting healthier, but I don't have a place to work out,’” McMahon says. “[The fitness center] was the next logical step.”

Chattanooga's police department, which has 800 employees, has its own fitness facility, so many of the users at the city-run facility are office staff and maintenance staff, McMahon says.

Unlike some city-run facilities that have the latest bells and whistles, Chattanooga's facility is fairly basic, McMahon says. The facility has 18 pieces of cardio equipment as well as strength equipment. There's also a multipurpose room and three plasma TVs.

“It's not a really elaborate fitness center,” she says. “The people who are already fit and go to local health clubs, they have a lot more services. We're trying to create an environment for someone who has never exercised before. One of the arguments from a for-profit club might be, ‘If the city government opens a fitness center, that's going to be cutting into my business.’ I don't think it has hurt them at all.”

Initially, some Chattanoogans expressed concern that the city was spending too much of the taxpayers' money on a fitness facility. However, McMahon says that the city did not have to cut services to taxpayers to build the facility.